Shutterfly 2011 Annual Report Download - page 8

Prints
Our Prints offerings include 4x6 prints, as well as other print sizes ranging from wallet sized to jumbo-
sized 20x30 enlargements. Also
included in print revenue are photocards, which are personalized silver halide photo prints with designed content, used for greeting card
occasions ranging from holidays to birthday cards and thank you notes. During the last three years, our Prints revenues as a percentage of total
revenues have declined to 27% in 2010, from 33% in 2009, and 39% in 2008. Despite this overall decrease, we continue to utilize our Prints
category to drive new and continued engagement with the Shutterfly brand, and we continue to innovate in this category.
Commercial Print Services
In order to use available manufacturing capacity during low volume periods and to leverage our large installed base of digital presses, we
provide commercial print services primarily to the direct marketing industry. Our commercial print revenues are derived from the printing and
shipping of direct marketing and other variable data print products and formats. We continue to focus our efforts in expanding our presence in
this market. For example, in November 2010, we acquired certain assets and liabilities of WMSG, Inc. to enable a complete solution for variable
digital print marketers and other print-on-
demand opportunities. Our commercial print revenue as a percentage of total net revenue was 2% in
2010, 1% in 2009 and 0% in 2008.
Technology and Production Systems
We use a combination of proprietary and third-party technology, including the following:
Customer relationship management, or CRM, system.
Our integrated CRM system is composed of various tools designed to
convert first-
time customers into repeat buyers. We seek to increase average order sizes by expanding customer awareness, providing
targeted, segmented offers to customers, and encouraging cross- and up-
selling. The system uses a variety of data, including website
usage patterns, order size, order frequency, products purchased, seasonality factors, image upload, and share usage, as well as customer
satisfaction information. This data is continually updated and refreshed in a data warehouse, from which different customer segments
are identified and monitored on a continuing basis for targeted marketing communications.
By using this deep customer intelligence and ongoing analysis, we are able to offer customers a more personalized website
experience and to target them with specific website promotions, discounts, specialized e-
mail, and direct mail offers. Our promotion
engine generates special offers that are account specific and applied automatically at checkout.
We are also able to dynamically assign visitors to test and control groups who are shown different versions of our service. This
form of A-B testing enables us to continuously optimize products, pricing, promotions, and user interaction with our website.
Website system. We have designed our website system to be highly available, secure and cost-
effective. We can scale to
increasing numbers of customers by adding relatively inexpensive industry-
standard computers and servers. We have a strong
commitment to our privacy policy, and we utilize technologies such as firewalls, encryption technology for secure transmission of
personal information between customers’ computers and our website system and intrusion detection systems.
Image archive. We store our customers’
images in our image archive. Once a customer uploads a photo to our website, it is
copied to multiple redundant systems, including an off-
site copy. We continue to expand our storage capacity to meet increasing
customer demand. Our innovative storage architecture provides low storage costs, facilitates the safe, secure archiving of customers’
images and delivers the speed and performance required to enable customers to access, enhance and edit their images in real-time.
Render farm. Once a customer orders a photo or any photo-
based product, our render farm technology performs fully automated
image processing on the image prior to production. The customer’
s original uploaded image is retrieved from the image archive, and
automatic algorithms enhance the color, contrast and sharpness of the image. The render farm also performs customer-
requested edits
such as crop, borders, customized back-printing and red-eye removal.
To ensure that output is of consistent quality, we apply our proprietary ColorSure technology during this render stage. ColorSure
creates an automated mapping of the image’s specific attributes to the printer’
s specific print calibrations and attributes, prior to
production. For example, this technology allows a 4x6 print to look the same as a photo printed on an enlargement or in a photo book,
even if they are ordered at separate times.
Production system.
We operate our own production facilities in Charlotte, North Carolina and Phoenix, Arizona. Our
automated production system controls our production processes, including order management and pick, pack and ship operations. Using
proprietary algorithms, the production system analyzes tens of thousands of orders daily and automates the workflow into our high-
volume silver halide photofinishing machines and our state-of-the-art digital presses.
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